GENCORP INC - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)


[X]		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended: February 28, 2003

		or


[ ]		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the transition period from ___________________ to ___________________

Commission File Number 1-1520

GenCorp Inc.

(Exact name of registrant as specified in its charter)


Ohio (State of Incorporation)		34-0244000 (I.R.S. Employer Identification No.)

Highway 50 and Aerojet Road Rancho Cordova, California (Address of Principal Executive Offices)		95670 (Zip Code)

P.O. Box 537012 Sacramento, California (Mailing Address)		95853-7012 (Zip Code)

Registrant’s telephone number, including area code (916) 355-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [x] No [ ]

As of March 21, 2003, there were 43,501,039 outstanding shares of the Company’s Common Stock, $0.10 par value.

TABLE OF CONTENTS


Part I – FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II – OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits and Reports on Form 8-K
Signatures
CERTIFICATIONS
EX-10.1 Employee Restricted Stock Option Agrmnt

GenCorp Inc.

Quarterly Report on Form 10-Q
For the Quarterly Period Ended February 28, 2003

Table of Contents


Item
Number		Page

	PART I – FINANCIAL INFORMATION

1	Financial Statements	1

2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

3	Quantitative and Qualitative Disclosures About Market Risk	29

4	Controls and Procedures	29

	PART II – OTHER INFORMATION

1	Legal Proceedings	30

4	Submission of Matters to a Vote of Security Holders	30

6	Exhibits and Reports on Form 8-K	31

	SIGNATURES

	Signatures	32

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

GenCorp Inc.

Condensed Consolidated Statements of Income
(Unaudited)


	Three months ended
	February 28,

	2003				2002

	(Dollars in			millions, except per share amounts)

Net Sales	$	271			$	249
Costs and Expenses
Cost of products sold		228				210
Selling, general and administrative		18				14
Depreciation and amortization		18				16
Interest expense		5				3
Other (income) expense, net		(3	)			(1	)
Unusual items		—				2

Income Before Income Taxes		5				5
Provision for income taxes		2				2

Net Income	$	3			$	3

Earnings Per Share of Common Stock
Basic	$	0.07			$	0.07

Diluted	$	0.07			$	0.07

Weighted average shares of common stock outstanding		43.0				42.7

Weighted average shares of common stock outstanding, assuming dilution		43.1				43.1

Dividends Declared Per Share of Common Stock	$	0.03			$	0.03

See Notes to Unaudited Condensed Consolidated Financial Statements.

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GenCorp Inc.
Condensed Consolidated Balance Sheets


		February 28,		November 30,
		2003		2002

		(Unaudited)
		(Dollars in millions,
		except per share amounts)
Current Assets
Cash and cash equivalents		$	45	$	48
Accounts receivable			140		139
Inventories, net			178		167
Recoverable from the U.S. Government and other third parties for environmental remediation costs			24		24
Deferred income taxes			4		—
Prepaid and other expenses			12		5

	Total Current Assets		403		383
Noncurrent Assets
Property, plant and equipment, net			482		481
Recoverable from the U.S. Government and other third parties for environmental remediation costs			205		208
Deferred income taxes			—		9
Prepaid pension asset			341		337
Goodwill			132		126
Other noncurrent assets, net			94		92

	Total Noncurrent Assets		1,254		1,253

	Total Assets	$	1,657	$	1,636

Current Liabilities
Short-term borrowings and current portion of long-term debt		$	21	$	22
Accounts payable			87		89
Reserves for environmental remediation			39		39
Income taxes payable			17		22
Current deferred income taxes			—		1
Other current liabilities			201		200

	Total Current Liabilities		365		373
Noncurrent Liabilities
Convertible subordinated notes			150		150
Other long-term debt, net of current portion			226		215
Reserves for environmental remediation			297		301
Postretirement benefits other than pensions			172		176
Deferred income taxes			1		—
Other noncurrent liabilities			67		61

	Total Noncurrent Liabilities		913		903

	Total Liabilities		1,278		1,276

Commitments and Contingent Liabilities Shareholders’ Equity
Preference stock, par value of $1.00 per share; 15 million shares authorized; none issued or outstanding			–		–
Common stock, par value of $0.10 per share; 150 million shares authorized; 43.7 million shares issued, 43.0 million outstanding as of February 28, 2003 (43.5 million shares issued, 43.0 million shares outstanding as of November 30, 2002)			4		4
Other capital			13		13
Retained earnings			358		356
Accumulated other comprehensive income (loss), net of income taxes			4		(13	)

	Total Shareholders’ Equity		379		360

	Total Liabilities and Shareholders’ Equity	$	1,657	$	1,636

See Notes to Unaudited Condensed Consolidated Financial Statements.

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GenCorp Inc.

Condensed Consolidated Statements of Cash Flows
(Unaudited)


				Three months ended
				February 28,

				2003			2002

				(Dollars in millions)
Operating Activities
Net income				$	3		$	3
Adjustments to reconcile net income to net cash used in operating activities:
	Net loss related to reacquisition of minority ownership interest in subsidiary				–			2
	Depreciation and amortization and gains on disposition of assets				18			16
	Deferred income taxes				8			(4	)
	Changes in assets and liabilities, net of effects of acquisitions of businesses:
		Current assets			(11	)		26
		Noncurrent assets			(1	)		1
		Current liabilities			(24	)		(24	)
		Noncurrent liabilities			(6	)		(23	)

			Net Cash Used in Operating Activities		(13	)		(3	)
Investing Activities
Capital expenditures					(9	)		(6	)
Proceeds from asset dispositions					7			–
Acquisition of businesses, net of cash acquired					–			(8	)

			Net Cash Used in Investing Activities		(2	)		(14	)
Financing Activities
Borrowings on revolving credit facility, net					15			3
Net short-term debt repayments					–			(2	)
Net proceeds from the issuance of long-term debt					(5	)		25
Dividends paid					(1	)		(1	)
Other equity transactions					–			1

			Net Cash Provided by Financing Activities		9			26

Effect of exchange rate fluctuations on cash and cash equivalents					3			1

Net (Decrease) Increase in Cash and Cash Equivalents					(3	)		10
Cash and Cash Equivalents at Beginning of Period					48			44

Cash and Cash Equivalents at End of Period				$	45		$	54

See Notes to Unaudited Condensed Consolidated Financial Statements.

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GenCorp Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Basis of Presentation and Nature of Operations

The accompanying Unaudited Condensed Consolidated Financial Statements of GenCorp Inc. (GenCorp or the Company) include the accounts of the parent company and its wholly-owned and majority-owned subsidiaries. These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all of the information and notes required by accounting principles generally accepted in the United States. These interim financial statements should be read in conjunction with the financial statements and accompanying notes included in the GenCorp Annual Report on Form 10-K for the year ended November 30, 2002, as filed with the Securities and Exchange Commission (SEC).

In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented. All significant intercompany balances and transactions have been eliminated in consolidation. The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. In addition, our operating results for interim periods may not be indicative of the results of operations for a full year.

Certain reclassifications have been made to financial information for prior periods to conform to the current period’s presentation.

Headquartered in Sacramento, California, the Company is a multinational manufacturing company operating primarily in North America and Europe. The Company’s continuing operations are organized into three segments: GDX Automotive, Aerospace and Defense, and Fine Chemicals. The Company’s GDX Automotive segment is a major automotive supplier, engaged in the development, manufacture and sale of highly engineered extruded and molded rubber and plastic sealing systems for vehicle bodies and windows for automotive original equipment manufacturers. The Aerospace and Defense segment includes the operations of Aerojet-General Corporation (Aerojet or AGC). Aerojet’s business primarily serves high technology markets that include space and strategic rocket propulsion and tactical weapons. Primary customers served include major prime contractors to the U.S. government, the Department of Defense and the National Aeronautics and Space Administration. The Company also has significant undeveloped real estate holdings in California. The Company’s real estate activities are a component of its Aerospace and Defense segment. The Company’s Fine Chemicals segment consists of the operations of Aerojet Fine Chemicals LLC (AFC). AFC’s sales are derived primarily from the sale of custom manufactured active pharmaceutical ingredients and advanced/registered intermediates to pharmaceutical and biotechnology companies. Information on the Company’s operations by segment is provided in Note 11.

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2. Earnings Per Share of Common Stock

A reconciliation of the numerator and denominator used to calculate basic and diluted earnings per share of common stock (EPS) is presented in the following table (in millions, except per share amounts):


		Three months ended February 28,

		2003		2002

Numerator for Basic and Diluted EPS
	Net income	$	3	$	3

Denominator for Basic EPS
	Weighted average shares of common stock outstanding		43.0		42.7

Denominator for Diluted EPS
	Weighted average shares of common stock outstanding		43.0		42.7
	Employee stock options		—		.4
	Other		.1		—

			43.1		43.1

Basic EPS		$	0.07	$	0.07

Diluted EPS		$	0.07	$	0.07

The effect of a conversion of the Company’s $150 million convertible subordinated notes into common stock was not included in the computation of diluted earnings per share for the three months ended February 28, 2003 because the effect would be antidilutive for the period. These notes were issued April 5 and April 17, 2002 and are convertible at an initial conversion rate of 54.29 shares per $1,000 outstanding. Potentially dilutive securities that are not included in the diluted EPS calculation because they would be antidilutive also include 3,229,000 and 542,000 employee stock options as of February 28, 2003 and 2002, respectively.

3. Inventories


		February 28,			November 30,
		2003			2002

		(Millions)
Raw materials and supplies		$	31		$	32
Work-in-process			15			16
Finished goods			14			15

Approximate replacement cost of inventories			60			63
LIFO reserves			(4	)		(4	)

			56			59
Long-term contracts at average cost			179			164
Progress payments			(57	)		(56	)

	Inventories	$	178		$	167

-5-

4. Property, Plant and Equipment


		February 28,			November 30,
		2003			2002

		(Millions)
Land		$	50		$	50
Buildings and improvements			298			299
Machinery and equipment			732			708
Construction-in-progress			29			23

			1,109			1,080
Less: accumulated depreciation			(627	)		(599	)

	Total property, plant and equipment, net	$	482		$	481

5. Other Current Liabilities


		February 28,		November 30,
		2003		2002

		(Millions)
Accrued liabilities for goods and services		$	89	$	95
Advanced payments on contracts			10		6
Accrued compensation and employee benefits			34		37
Other postretirement benefits			29		29
Other			39		33

	Total other current liabilities	$	201	$	200

6. Long-term Debt


		February 28,			November 30,
		2003			2002

		(Millions)
Revolving credit facility		$	60		$	45
Term Loan A			66			71
Term Loan B			115			115
Convertible subordinated notes			150			150
Other			6			6

	Total debt		397			387
Less: amounts due within one year			(21	)		(22	)

	Long term debt	$	376		$	365

As of February 28, 2003, the borrowing limit under the revolving credit facility was $137 million, of which the Company had drawn